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UBS Exits Protocol, Creating ‘New World’ for Advisors, Clients

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One month after Morgan Stanley said it was leaving the Protocol for Broker Recruiting, UBS says it will too.

“As our operating model is more focused on retaining our existing advisors than recruiting to grow our business, UBS will no longer be subject to the Protocol effective Friday, Dec. 1, 2017,” said Tom Naratil, head of the firm’s Wealth Management Americas unit, in a memo obtained by ThinkAdvisor on Monday.

The wirehouse firms agreed to the Broker Protocol in 2004 to facilitate the movement of registered representatives without violations of non-solicitation clauses or Securities and Exchange Commission Regulation S-P, which aims to protect client privacy. The protocol has since been signed by over 1,600 firms seeking to avoid legal entanglements tied to recruiting.

Danny Sarch, head of Leitner Sarch Consultants, says that broadly speaking, “It’s a new world” for advisors and clients.

“We could see a wave of UBS departures,” he explained—adding that this is generally what happened a few weeks ago at Morgan Stanley. “Those [advisors] planning to go before the end of the year are going to make a strong effort to leave soon—before Friday.”

Will more firms leave the protocol? “If you think you will be a net hirer and not a [net] loser, you would stay in [it],” Sarch said.

The recruiter says that while UBS’ departure creates headaches for advisors, it really hurts clients—who could have a hard time contacting advisors after they have left firms no longer in the protocol.  

“Ultimately, issues will end up in courts or in arbitration,” he explained. “But we are not in 2004. Advisors text clients and keep client contact information on their phones … It’s all new.”

Different Take

Others, though, don’t see significant change tied to the departure of a second wirehouse firm from the recruiting arrangement. 

“The exit from the protocol by UBS won’t have much of an impact on the recruiting landscape,” said Mark Elzweig, an executive search consultant, in an interview.

“They are where they want to be with a salesforce of almost 7,000 advisors and only make sporadic hires. Leaving the protocol won’t hurt them much,” he explained.

As of Sept. 30, UBS Wealth Management Americas had 6,861 advisors — down from 6,915 in the earlier quarter and 7,087 a year ago. The level of recruitment loans to financial advisors weakened to $2.68 billion in the third quarter of 2017 vs. $2.75 billion in Q2’17 and $3.18 billion in Q3’16.

Elzweig notes that rival firms will “view this [move by UBS] as an opportunity.”

In a recent interview, Morgan Stanley veteran Phil Shaffer predicted more large firms would abandon the protocol.

This is because the wirehouse firms — Merrill Lynch, Morgan Stanley, UBS and Wells Fargo — want to protect the roughly one-third of the wealth industry’s client assets they now manage. Sources like Cerulli Associates “say that share continues to shrink,” said Shaffer, CEO and founder of Halite Partners, an RIA in Columbus, Ohio, in an interview.

Other industry insiders, such as David Canter — head of Fidelity Clearing & Custody Solutions’s RIA segment — agree.

“We’ve been seeing a secular shift toward independence, and we expect that these moves by the brokerages [to leave the protocol] will likely cause both a short-term acceleration as well as a long-term steady increase in the number of advisors moving to independent models,” Canter said.